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When a company reports its quarterly earnings, management often presents just a sketch of how the company performed. But equally important for investors is the conference call where management's commentary colors in the sketch, providing the full picture of the company's recent performance.
Let's look at some of management's more notable comments from FuelCell Energy's (NASDAQ: FCEL) most recent call to help discern the full picture for Q3 2016.
Ending the year strong
On the conference call, management forecast revenue for the fourth quarter to fall between $56 million and $86 million. If the company reports sales in this range in the next quarter, it will achieve the revised fiscal 2016 forecast of $140 million to $170 million it issued during the Q2 earnings release.
Why is a company, which has experienced such difficulty in growing revenue, confident that it will more than double the $22 million in revenue that it reported in the previous quarter? For one, the company expects to complete the sale -- which was originally expected before the summer -- of a 5.6 MW project to Pfizer. In addition, FuelCell Energy expects to complete a 1.4 MW on-site power plant at the Santa Rita Jail in California and a 2.8 MW facility for longtime utility customer, United Illuminating in Connecticut.
But these are just the ones management is naming. Referring to "a fair number of contracts in negotiation right now that could drive revenue increases in the fourth quarter,"Michael Bishop, FuelCell Energy's CFO, suggested that the company could very well be reporting revenue at the upper end of its guidance range at the end of the fourth quarter.
Capturing the carbon opportunity
FuelCell Energy raised eyebrows last May, when it announced a deal with ExxonMobil to pursue fuel-driven carbon-capture technology. A successful partnership could be transformative for FuelCell Energy -- a multibillion-dollar opportunity, according to the company's president and CEO, Chip Bottone. It will be many years, however, before this partnership bears fruit. But on the conference call, Bottone revealed that Exxon isn't the only game in town.
Addressing other opportunities, Bottone reported that the company has "got a pretty good backlog in our advanced technologies business, but we would expect that to turn into revenue relative to carbon capture here in the next subsequent quarters."
This comment wasn't the only one from the call indicating that carbon capture solutions will soon contribute to the top line. Earlier, Bottone stated that the company is expanding manufacturing capacity at its facility in Connecticut to meet forecast future demand stemming from "pending RFP awards,including utility-scale projects such as large fuel cell parks and potential carbon capture projects."
Credit where it's due
There were some common refrains on the conference call: optimism for receiving the Beacon Falls Energy Park project and excitement for the carbon capture opportunity, to name a couple. But there was another -- one that could have more formidable consequences.
Although many in the renewable-energy community celebrated the extension of the investment tax credit (ITC) last year, the fuel-cell industry was hung out to dry.
Image source: FuelCell Energy corporate website.
Politicians claim that this was a mere oversight, and it will be eventually corrected in future legislation. But when exactly that will be, if at all, remains uncertain.
When asked about the renewal of the ITC, Bottone reiterated his confidence that it will be addressed, stating that his "expectation is the ITC will get resolved." Elaborating on this, Bottone suggested that there are three opportunities for Congress to accomplish this: before the election, in the lame-duck session following the election, or in the session with the new Congress.
When asked whether or not new customers were willing to initiate projects in light of the uncertainty surrounding the ITC's renewal, Bottone failed to answer the question directly.
FuelCell Energy continues to struggle in its attempts to provide for a hydrogen-filled future; however, in the face of these hurdles, management consistently points investors to the promise of the future. In the near term, the company believes it's on track to achieve its fiscal 2016 revenue estimate. If the company accomplishes this feat, investors must remain skeptical. For if FuelCell Energy meets the midpoint of its quarterly guidance and reports $71 million in revenue, it will represent 39% growth quarter over quarter; however, the seeming cause for celebration would be illusory. It would also mean that annual revenue in 2016 dropped 5% from the $163 million the company reported in 2015.
In terms of the ITC, Bottone maintains his optimism that it will be renewed, but he fails to address -- an inauspicious sign -- whether the uncertainty is affecting new business. Perhaps we should pay attention to the company's 10-Q instead. According to the 10-Q, the company ended the third quarter with only $392 million in contract backlog -- a decrease from the $411 million it reported at the end of the second quarter, bringing the company's four-quarter streak of increasing backlog to an end.
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